Industry lost its growth source
In May, for the first time since early 2013, stocks declined (by BYR 897. 9 billion).
In 2013 growing stocks enabled industries to demonstrate industrial production growth. In May, measures implemented to reduce stocks’ volumes, resulted in a sharp decline in industrial production. Reduced stocks will help enterprises to improve their financial performance, however orders to increase production output to ensure projected GDP growth rate might be issued again.
Over the past five months in 2013, only in January the industry was able to increase the industrial production volume. High standards set in 2012 were mainly due to the production of solvents and lubricants. To achieve the desired growth, industries have increased stocks dramatically, regardless of the obvious deterioration in the external economic situation. In Q1 2013 stocks grew by BYR 11.2 billion, or 5.4% of the total production during the period. If stocks had not increased, industrial production index could be below 95%, thereby clearly indicating problems in the industry. Growing stocks enabled to assess the situation as “minor problems of seasonal nature”.
Simultaneously, growing stocks provoked sharp criticism by the authorities, which demanded to reduce stocks substantially by autumn. In May stocks were reduced by BYR 897.9 billion. Food industry played the major role. Stocks reduction in machinery and equipment manufacturing is questionable, because goods could have been sent to warehouses in Russia. In May industrial production reduced by 10.5% compared with May 2012, which in turn resulted in slower GDP growth – from 2.5% in January-April to 1.1% January - May.
Reduced stocks improve enterprises’ financial performance. They spend less on warehouse rental space, improve payments balance, and reduce production of non-liquid products. Some companies started monitoring market conditions and adjusting their production plans accordingly. However, soon the authorities might start interfering with enterprises economic activities again and demand to increase the production volumes, since industry generates 27% of GDP, affects the wholesale trade, which accounts for circa 9-9.5% of GDP, and other activities and taxation. GDP growth plans will not be performed, but the government needs to show at least a minimal increase in GDP, because GDP was growing over the last 10 years.
The Labour and the Tax Ministries are considering the possibility to include persons engaged in some economic activity without forming a legal entity in the social security system. When the decree No 337 comes into effect, the number of private entrepreneurs is likely to reduce due to the possibility of reducing the tax burden when switching to a tax payment as an individual. 95% of self-employed, including PE, pay insurance premiums on the basis of the minimum wage. The number of self-employed citizens is expected to increase, the number of insurance contributions to the pension system from PE will decrease, the number of citizens who will pay a fee to finance government spending will decrease by several tens. Self-employed citizens have the alternative not to pay social security fees and save resources for future pensions, which, given the gradual restriction by the state of pension requirements could be a more long-sighted option.